Profiles

Just as natural science developed out of a natural philosophy we are hopefully moving toward a science of regulation, both in the sense of being well-established knowledge and drawing on political science and quantitative economics.  

 

The world’s financial infrastructure remains in flux. The United States’ FATCA, Britain’s “son of FATCA,” France’s “mini-FATCA,” the dozens of intergovernmental agreements (IGAs) being entered into by governments around the world with the U.S., and calls by many EU member states for IGA-like agreements of their own are changing the rules of international financial transactions.

 

Warren Buffett famously explained to his shareholders in 2004 that investors “should try to be fearful when others are greedy and greedy when others are fearful". 

 

At age 19 there was no doubt in my mind that I did not want a career in criminal law. I chose the much more objective (and enjoyable) commercial law. So much for that!   

 

The apocryphal Chinese proverb, “May you live in an interesting age”, describes the current international financial environment – from the US FATCA to the various “me too” versions being hastily put forward by European governments, the world’s financial plumbing is being reworked.

 

An explosion of prosperity around the world has followed the increasing liberalisation (globalisation) of trade and investment.

 

The great curse of democracies is that eventually a majority of the people become addicted to and demand ever more government benefits that cannot be funded by the diminishing numbers of taxpayers or through borrowing.

 

 The proposed tax, since dropped, would have been a 10 per cent payroll tax on expatriates making more than $36,000 per year. Cayman had never had a direct income tax, and officials have always previously insisted that Cayman would never have one.  

In the early 1970s, there was no euro, Greece could print as many drachmas as it wanted, and the notion of a common European fiscal policy would have been dismissed as sheer fantasy by all but the most ardent proponents of a “United States of Europe”.

 

 Consider the following recent comments by key regulators in the United Kingdom and the United States and a likely one from France:  

 

The global debt crisis is leading to increased money chaos. Europe is in the worst shape, but the debt and money problems are to be found almost everywhere on the globe. As an economist who has often written about money, I feel a bit of embarrassment about how little progress we have made with “money”.

 

The Swiss franc, the currency of a country that has a few things in common with the Cayman Islands, shot up from $1.082 (USD/CHF) on 5 April of this year to $1.375 on 10 August, an increase of 27 per cent in four months.

 Governments the world over are faced with the challenge of a growing imbalance between public spending and revenues.   

The global financial crisis, Cayman’s struggles to balance its budget, the sequential financial meltdowns among Europe’s PIIGS, and the turmoil in the Middle East’s impact on energy prices (let alone the question of whether countries like Egypt will end up better off or not) could all make one gloomy about the future. 

The last couple of years have left people in a depressed mood. But if one looks at the world as a glass half full rather than half empty, there is reason for optimism. The fact is the world economy is growing and in some important places, China, India, Brazil, Egypt, Turkey, Indonesia, Chile, etc, at very substantial rates.

Crystal ball gazing is precarious at the best of times, but especially so in the current world economic environment. This does not stop people predicting the timing of the global economic recovery.

A popular TV show in the early nineties was “Short Attention Span Theater”. The title itself neatly parodied the growing culture of clips and sound bites to convey both news and entertainment and, sadly, this trend has continued. One result is that today many people obtain nearly all their financial information from television and internet sources, which deal with complex economic issues in a thirty second burst or a couple of pithy headlines.

In many ways, some of our states are like General Motors before its bankruptcy, suffering from falling revenue, borrowing money to cover operating expenses and operating under crushing legacy health and pension liabilities. 

Both the US Congress and most of Europe took vacations at the end of the summer, bringing a temporary respite in most of the efforts by the American government, EU, OECD and many European governments; although American efforts to breach Swiss banking secrecy continued despite the August heat. Nonetheless, when congressmen and senators stagger back this fall from their mauling at the hands of constituents angry over soaring deficits and the proposed health care ‘reforms’, the proposed Stop Tax Haven Abuse Act, anti-offshore budget provisions...

The year 2009 delivered a surprisingly strong recovery as equity markets rebounded from the historic financial crisis seen in the second half 2008. The remarkable levels of government investment into the global financial system seem to have rescued the world’s economy from a potential disaster that could have taken decades to recover from.